Reserve Bank of New Zealand (Monetary Policy) Amendment Bill

Thank you, Mr Chair. I’m also pleased to stand. I still have a couple of questions, believe it or not—believe it or not. I’m pleased to be standing here this afternoon, and I have a couple of questions for the Minister in the chair, Grant Robertson, which I don’t think he’s quite asked. He may say that it’s the responsibility of the Reserve Bank of New Zealand (RBNZ) to do this and that, but my question is: given the limited number of tools available to the RBNZ, other than interest rate—other than changing interest rates. We know that the RBNZ have used loan-to-value ratios (LVRs), for example, to create some price stability, if you like. There was also a discussion around the RBNZ using an income test to restrict people from taking up bank loans, and, again, that was aimed at price stability—not targeting inflation, but really around the mandate of price stability. That seemed to work, and that has worked, and the LVRs have been reduced or eliminated.

So those extra tools—or that one particular extra tool was useful and, as I say, we were discussing the use of another tool for the purpose of price stability, which we didn’t get round to using, and I haven’t heard the Minister raise that possibility in recent times. So I assume he would agree with me that that particular tool wasn’t especially useful, but nevertheless, we shouldn’t assume.

My question is: given the limited number of tools that the RBNZ has, what levers does the RBNZ use to focus on full employment or full, high, sustainable employment, whatever that means? I accept that these things can change depending on the parameters that the economy finds itself in—you know, the Minister mentioned the global financial crisis, for example. So, accepting that the employment level may rise and fall, I’m interested in knowing what tools or even additional tools the Minister expects the RBNZ to use to focus on that one parameter of full employment, given that we’ve talked about two other tools that were available—one’s available; one was possibly available—to the RBNZ for the purpose of price stability. All those things are separate from the ability of the RBNZ to influence the overnight cash rate, which of course affects a whole lot of other things. A whole lot of other things flow from the official cash rate being set, whether it’s the forward curve, the futures curve, the futures interest rate curve, or foreign exchange levels expected in the economy.

So a brief question: how is and what tools does the RBNZ have to use to focus on the one particular parameter that he now says has always been considered but has to be legislated because that is some definition of the “real” economy. I would challenge that assumption. The real economy does not necessarily have to be prioritised around employment. There’s GDP per capita we’ve discussed a lot before: GDP nominal, GDP in itself—those things are the real economy, as well as full employment. So how is the RBNZ supposed to manage this parameter and what levers does the RBNZ have to focus on the full employment target?

I’ll put the member who’s just resumed his seat, Alastair Scott, out of his misery on Part 2 of this bill. He did a reasonable job of trying to find a way to relate what he said to Part 2. It actually didn’t, but that’s OK; I’ll help him. One of the things that’s in Part 2 is the process around the issuing of the remit for the monetary policy committee, and the remit for the monetary policy committee is the replacement for the policy targets agreement, which is the place in which the Reserve Bank and the Minister of Finance will agree on exactly how that will play out in practice. So I’ve connected it up for you. It’s no different, actually, than the previous thing.

What we could do is talk about what’s actually in Part 2 of the bill, and it is a reasonably brief part. What it does is some repeals—and I just want to come back to those in a moment—and then, as I say, in schedules 2 and 3 is the process for the establishment of the remit. This is the replacement of the policy targets agreement. This is the way in which we’ll agree on how the monetary policy objectives are actually put into practice and also the creation of the charter. The charter is a very important part of this process. It’s the agreement around how the monetary policy committee will work, and it was a question asked towards the end of the last part around how the monetary policy committee—I think the word Mr McKelvie used was “security”, but how we will be confident in the accountability arrangements.

That’s exactly what the charter does. The charter will establish that. It will be around some issues around the expectations of members and how they’ll behave. Some of the things we’ve discussed in public about this will be, for example, that minutes of meetings will be published, as they are in other jurisdictions. We’ve made clear we won’t necessarily attribute who said what in those minutes, but we will have the level of accountability that’s available for people. It also, in schedule 2, looks at how the observer from Treasury will be appointed, which I covered in my last contribution, and also some details around transitional provisions for office holders.

I do just want to point out one policy change that is contained in Part 2, and this is the section in the Act which disqualifies a governor or deputy governor if they are 70 years of age or over. This is outdated, and I want to acknowledge the Minister for Seniors in this particular moment. It’s not a good way of—

💬 Hon Damien O’Connor: What did the Tories do?

Mr O’Connor, it’s not a good way of deciding if somebody is capable to judge them by their age. [Interruption] That’s right. Isn’t it, Mr O’Connor? That is not a good way to do it, and so that policy change is covered by Part 2 of the bill.

A number of other redundant provisions have been repealed which confer powers on the bank to do certain things like opening branches, which they don’t do. However, expressly providing for these powers is unnecessary because the bank is, in fact, a body corporate with all the rights and powers and privilege of a natural person to carry on the business of banking, and the transitional provisions that actually date back to the 1989 Act have been repealed.

I hadn’t realised until that contribution from the Minister of Finance that we had a particular clause in here about making sure that somebody capable and interested in these things can continue with the work after he or she reaches 70 years of age. I now just wonder whether this is the reason why this legislation’s before the House. The Rt Hon Winston Peters has argued for many years on changes to the Reserve Bank of New Zealand Act every election campaign, and I suspect this time he’s argued for it again, so of course that’s why it’s before the House. The de facto Prime Minister’s got his wish, and we’re now amending the Reserve Bank of New Zealand Act, and maybe it’s because he needs a job at the end of 2020—he needs a job. Maybe that’s the reason for the legislation. So I just want the Minister in the chair to rise to his feet shortly and assure us that that’s not the reason for the particular amendment that he’s just alerted the committee to.

My second question relates to clause 23 of replaced schedule 2 set out in schedule 3, “Treasury observer”. I want the Minister to answer a question here, because we raised this issue at the Finance and Expenditure Committee with some concern, but as Opposition members we’re in a minority at that select committee and the chairman does a very good job as a lackey of the Labour Government, so our amendments go absolutely nowhere and the bill gets returned, effectively, unchanged despite very valuable, constructive comments from Opposition members. At clause 23, we, as Opposition members, were worried about the wording, “(1) The Secretary to the Treasury must ensure that the Secretary, a Deputy Secretary to the Treasury, or any other Treasury officer or employee is nominated to be a Treasury observer.” We felt this, after Treasury’s argued for so long to have the opportunity to be more involved in the Reserve Bank decisions—we argued that to put the words “any … employee” was actually downgrading this position.

We suggest it should be the secretary, or it should be a deputy secretary, and we argued therefore for the words “any … employee” to come out, because I don’t want a new, fresh-faced graduate from Victoria University coming in with a minor economics degree and then suddenly finding, because he’s a favourite of the secretary or the deputy secretary, that he or she’s in this position. So I want the Minister to assure us that after Treasury having argued so long—29 years, in fact—to get more influence over the Reserve Bank, the appointment of the Treasury observer will indeed be somebody senior. I want an assurance from the Minister of that, and I think we should actually be moving an amendment and making sure that the words do change, so it should either be the secretary or one of the deputy secretaries. This is an important position. Treasury has argued for it for years, and it should not be some junior, fresh graduate who gets into this position of being the Treasury observer. So I’d really appreciate an answer to that.

While I’m on my feet, I do point out I did ask another question earlier of the Minister, which he didn’t answer, and it’s probably because he can’t answer it. I want to know what maximum sustainable employment is.

💬 Hon Grant Robertson: I did answer it.

Well, he said he did answer it, but I don’t think anybody on this side understood it, and I’d be very grateful if—

💬 Hon Tracey Martin: It’s not our fault.

“Well, it’s not our fault.”—the shrill from the Hon Tracey Martin comes across. If it’s explained in plain English so that we could understand it—and I do bear in mind we’re in good company here, because Adrian Orr, the current Governor of the Reserve Bank, couldn’t understand what maximum sustainable employment is either. So if Grant Robertson could elucidate that, we’d be very grateful, even though I do acknowledge it’s Part 1 and not Part 2.

I won’t dwell on that. It’s in the publicly available material that’s been released, so I won’t breach the rules of the House; I’ll just point the Rt Hon David Carter to the Cabinet paper that establishes it. It’s available; all of those papers have been released, and you’ll be able there to delve deeply. I’m more than happy to perhaps, you know, go out, have a cup of coffee, and dig our way through that issue for the member.

He did, however, raise two points that are relevant to Part 2 of the bill. The first of those is around the age, and he was seeking my assurance that the Rt Hon Winston Peters is not looking—or that’s not the reason that this is here. I can confirm that is not the reason that this provision is here. I do know that there are some members of this House who are looking to retire in the near future and, quite clearly, given the contribution of the Rt Hon David Carter tonight, this is a topic of great interest to him. All I can say is that if I have to weigh him and the Hon Chris Finlayson up together for this position, you know, we’ll have a fair contest between the two of them, and his membership of the Finance and Expenditure Committee could easily weigh in his favour.

In terms of the Treasury observer role, I think it’s pretty clear, and, certainly—I’m sure the Reserve Bank Governor has mentioned this to the select committee—they’ve already trialled having the secretary of the Treasury present at the monetary policy process, and it would certainly be my expectation as Minister that it will be a very senior person from Treasury who is there. But, like all legislation, it’s always good to have a certain amount of flexibility in the law.

I just rise to take a brief call. I was planning on taking a call in Part 1, but the speeches on the other side of the House just sort of dropped off very suddenly. I thought they’d go on for a little bit longer. So I missed my opportunity there, but I would like to make a contribution to this part.

The first thing I’d like to say is that we had a good select committee process around this bill. The ideas were vigorously discussed by members of the Finance and Expenditure Committee on all sides. We were well serviced by officials, and I acknowledge and thank them for their support for the committee. We had a wide range of submissions from people in the community, some people who thought the bill should actually go further in its reforms, a few people who thought it should pull back a bit, but, actually, the vast majority were in favour of the key thrust of the reforms, including the establishment of the monetary policy committee.

In respect of Part 2, I just wanted to draw the House’s attention to one of the changes that is in schedule 3, Part 1 of replaced schedule 2, which is one of the quite important changes that was made at select committee, and that is to open up the charter to public consultation. One of the things that I don’t think has been commented on too much in this debate is that, actually, one of the underlying objectives of this bill—and I think one of the really positive things—is that it does somewhat open up the slightly closeted citadel that is the Reserve Bank to greater public input and scrutiny.

So we have a process of public consultation around the remit, and that is what will, effectively, replace the current policy targets agreement. So there’ll actually have to be public consultation about what should be set out in that remit, and we will also have public consultation on the charter—this is the change in schedule 3, Part 1, clause 3. The charter is going to be quite an important part of the whole set of arrangements, because the charter will provide rules and guidance for how the monetary policy is going to conduct itself. This will be things like the publishing of minutes and the degree of detail which might be provided in respect of how the committee makes its decisions, and this will be really important information that will help the public to better see how the monetary policy committee actually works. Given some of the speeches we heard on the other side of the House earlier on about what an important institution the Reserve Bank is in the economic life of New Zealand, isn’t it right that we actually give it some greater oversight?

The other aspect that I wanted to point out, too, in this part—in clause 5 of replacement schedule 2, set out in schedule 3 of the bill—is that a copy of the remit will actually be presented to the House of Representatives for debate and discussion as well. So, once again, what we see coming through in Part 2 of this bill are changes which will actually open up and democratise the workings of the Reserve Bank. I think members would be wise to remember that over the 29 years of the Reserve Bank of New Zealand Act’s existence, while it’s enjoyed pretty broad support in Parliament, and most of the institutional structures actually do remain intact through this bill, and pretty wide support in the community, there have been concerns about, sometimes, a lack of oversight, a lack of scrutiny, a lack of accountability. So once again we have a couple of key measures in this part which do actually open up the bank to that scrutiny and to that democratic accountability. I think that’s a good thing. Thank you very much.